Maryland Senate OKs Income Tax Increase For High-Earners

ANNAPOLIS, Md. (CBSDC/AP) — After convening for a special session in Annapolis, the Maryland Senate voted Tuesday to increase state income taxes on individuals who make more than $100,000 a year in taxable income and couples who earn more than $150,000 and to start shifting some teacher pension costs to local governments over four years.

The Democratic-controlled Senate, acting in an unusual special session on measures that failed in stunning fashion during the final hours of the regular 90-day session last month, also passed a tax increase on tobacco products other than cigarettes as part of the package of budget measures that were adopted.

The Senate approved a budget reconciliation measure on a 33-13 vote, mostly along party lines. The Senate approved the income tax increase on a 27-19 vote with a handful of Democratic defections. The measures now go to the House of Delegates.

Democratic Gov. Martin O’Malley called the special session to avert about $500 million in cuts that the General Assembly approved after lawmakers failed to pass a tax package last month by the regular-session deadline.

Supporters argued that the proposed tax increases on high-earners were needed to prevent harmful cuts that would affect the entire state, particularly education and state agencies.

“The fact of the matter is that if this bill goes down — if this balanced budget package goes down — it’s average middle-class people that are going to pay the price,” said Sen. James Rosapepe, D-Prince George’s. “They’re going to pay the price in their children’s schools. They’re going to pay the price in higher tuition.”

But Republican opponents contended the state would be better off weathering the cuts, instead of raising taxes.

Republican Sen. E.J. Pipkin of Cecil County criticized O’Malley and the General Assembly for continuing to raise taxes, rather than undertaking the sort of belt-tightening that many Marylanders have had to do. Pipkin noted that O’Malley pushed through tax increases in 2007 that raised about $1.4 billion a year.

“Spending continues to go up,” Pipkin said. “This bill is a total admission that the Legislature and the governor do not want to control spending — that whenever things get tight we’ll come back and we’ll raise taxes.”

House Speaker Michael Busch, D-Anne Arundel, told reporters Tuesday morning that he expected a long day working on the budget package. The special session, which began Monday, could end as early as Wednesday.

The income tax increases resemble ones approved by a panel of House and Senate budget negotiators on the last night of the regular session, but which never got final approval as the clock ran out on the session. The tax increases would affect about 16 percent of the state’s top taxpayers:

—Single filers who make between $100,001 and $125,000 a year in taxable income and joint filers who earn between $150,001 and $175,000 a year would see their state income tax rate rise from 4.75 percent to 5 percent.

—Rates for single filers who make between $125,001 and $150,000 a year in taxable income would see their rate rise from 4.75 percent to 5.25 percent. The 5.25 percent rate would apply to joint filers who make between $175,001 and $225,000 a year.

—Rates would rise from 5 percent to 5.5 percent for singles who make between $150,001 and $250,000 annually in taxable income and joint filers who make $225,001 and $300,000 a year.

—Single and joint filers who make more than $250,000 a year would pay 5.75 percent.

Lawmakers are working to reduce an ongoing budget deficit of about $1.1 billion by about half. They plan to address the other half next year.

The tax increases would raise an estimated $264 million in fiscal year 2013. It drops down to about $210 million in the fiscal year after that because the tax is retroactive in fiscal year 2013, spanning a year and a half.

State analysts estimate the tax increase on a joint filer with two children and $175,000 in taxable income would pay about $254 more in state and local taxes.

The shift of teacher pension costs would be phased in over four years. About 50 percent of the costs would be split in the first year, followed by 65 percent in the second year. That would rise to 85 percent in the third year, with the rest of the split taking effect in the fourth. The state now covers teacher pension costs.

Public health advocates are praising the proposed tax increases on tobacco as a way to raise money for the state and reduce youth smoking. Taxes on “little cigars” would increase from 15 percent of wholesale to 70 percent under the legislation. Taxes on smokeless tobacco such as snuff would rise from 15 percent to 30 percent. There would be no change on premium cigars.

Senate President Thomas V. Mike Miller told reporters that the collapse of a budget package in the final hours of the session last month has prompted him to support a change in practice for future regular sessions. Miller said he would prefer to have the budget passed with seven days to spare in the session. If the budget fails to pass both chambers by that time, all work on other legislation would stop, and lawmakers would focus exclusively on the budget until it was resolved.

“I’m not sure it’s going to be a rule change, but it’s going to be a practice that we’re going to put in place,” the Calvert County Democrat said.

Busch had blamed senators for the failure of a budget deal last month, saying they were too focused on approving gambling measures in the session’s final days. Miller has denied that, saying there were big disagreements between the House and Senate on the tax package.

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